PremiumAs we are witnessing the second wave of covid-19, experts are reiterating the need for building an emergency corpus.
Last year, many businesses were hit hard due to lockdowns imposed to curb the spread of the pandemic. As a result, many people faced job loss and pay cuts. This resulted in many people facing financial stress as they had not prepared themselves for such exigencies. An emergency corpus can come in handy during such uncertain times.
An emergency corpus is basically an amount that is enough to take care of your monthly expenses in case you face a loss of income. Generally, it is advisable to have a corpus to take care of six months’ expenses. However, during covid, experts have been advising people to have a corpus of up to 12 months’ expenses, especially those working in vulnerable sectors such as tourism and aviation.
It is important to park the emergency corpus in liquid investments. One can keep some amount in a savings bank account, while liquid funds are also recommended to park your corpus as they are tax-efficient over the long term.
Liquid funds invest in debt papers of maturity up to 91 days and are hence less volatile. In case you redeem liquid mutual funds after three years, the gains are taxed at the rate of 20% plus indexation compared to fixed deposits and savings account interest being taxed at the slab rate. Indexation helps in bringing down the tax liability substantially.
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